SEC Moves Against Stanford

The Securities and Exchange Commission took action to move against R. Allen Stanford’s financial empire today, alleging that he and his companies were “orchestrating” a massive $8 billion fraud.

Regulators charged Stanford, a 58-year-old Texas-born billionaire, with misleading investors about the security of the high-yielding certificate of deposit sold by an offshore bank in Antigua that he controls. The bank, Stanford International Bank, is the heart of Stanford’s empire and purports to have over $8 billion in assets.

Federal securities regulators filed an emergency action in federal court in Dallas, Tx., getting a judge to freeze the company’s assets and appoining a receiver to take control of the firm’s Houston-based brokerage arm. The receiver appointed by a federal judge is Ralph Janvey, a Dallas lawyer.

Meanwhile, US Marshals, early Tuesday morning, entered the Houston headquarters of Stanford Financial and were moving to protect documents and evidence

The action by the SEC comes a week after BusinessWeek reported that authorities were moving quickly in their investigation of the firm and its offshore Antigua-based bank, which has sold a high-yielding certificate of deposit to wealthy investors in the US and Latin America.

A Stanford spokesman was not available for comment. Rose Romero, the SEC’s Fort Worth regional director, says, “We are alleging a fraud of shocking magnitude that has spread its tentacles around the world.” the SEC investigation is being led by Kevin Edmundson.

Also charged by the SEC was Stanford’s CFO Jim Davis and the firm’s Chief Investment Officer Laura Pendergest-Holt. Davis is a longtime friend of Allen Stanford’s. The two men were college buddies during their days at Baylor University.

The charges against Stanford come just two months following the alleged massive Ponzi scheme at Bernard Madoff’s firm. The SEC, sources say, has been investigating Stanford’s business for about two years.

The FBI also is investigating Stanford and his companies. But officials with the agency’s Houston office declined to comment.

Securities regulators are focusing their investigation on three main Stanford offices in the US in Memphis, Houston and Tupelo, Miss. Regulators believe that is where the heart of Stanford’s operation was located. Davis, the CFO, was based for many years in Memphis, recently relocating to the Tupelo location.

Stanford also has a big office in Miami, from which many of its brokers worked.

The firms claims to have 30,000 customers, all of them wealhty, in 130 countries. Most investors come from the US and Latin America. In recent days, investors have tried to get their money back from Stanford but many were turned away. One US investor, who declined to be named, said he just recently rolled over his CD that he had bought from Stanford’s bank. His broker told him last week that the firm wasn’t honoring any redemption requests right now.

Randy Pulman, a Texas lawyer, says he is representing a client with at least $1 million invested in CDs issued by the bank. The client was in the process of trying to get their money back when the SEC action unfolded. He’s not certain whether the client will get any money back now without pursuing litigation.

The filing of the SEC action was particularly welcomed by the lawyer for two former Stanford brokers, whose lawsuit last summer helped alert regulators to what allegedly was going on at the firm. “The SEC Enforcement action vindicates the reasons my clients left Stanford over a year ago,” says attorney Mike O’Brien.

It’s not known where Allen Stanford, the sole shareholder of Stanford Financial is. The Texas-born billionaire lives in St. Croix in the US Virgin Islands but also has homes in south Florida and Texas.

A bigger spender, Stanford owns a number of private jets. His companies have been big corporate sponsors of professional sports teams and charitable causes. Stanford and his employees also have been big contributors to political campaigns over the years. The firm has spent heavily on its many offices.

Former brokers say they never could understand where the company got all the money to pay for the sponsorships and fancy office digs.

In fact, the most recent audit of Stanford’s brokerage arm, a copy of which is filed with the SEC and obtained by BusinessWeek, shows that the division had incurred losses for many years. At the end of 2007, the brokerage arm had an accumulated a deficit of $77 million. The same audit also shows that the SEC had been requesting documents from the firm as far back as 2006.

Other regulatory filings show that Stanford’s brokerage arm managed about $4 billion in client money. Even adding in the $8.5 billion managed by its offshore bank, that’s far less than the $50 billion Allen Stanford claims his firm manages and advises.

It appears, if the regulators are to believed, there was a lot of smoke and mirrors at Stanford Financial. And investors are once again the apparent victims.

Reader Comments

Ben

February 17, 2009 12:55 PM

And thus the ponzi scheme collapses.

Now we shall see all they people saying how they never could have seen it coming and the people selling them the stuff were so good and believable... etc. etc. etc.

Carlos A. Quijano

February 17, 2009 01:02 PM

Acciones de la SEC con Stanford.

Pellucid

February 17, 2009 01:38 PM

Now that some "adult supervision" is going to be established (at least for a while) in Antigua, its going to be interesting to see how Stanford was involved with the Birds and if Spencer, despite his arms-length attitude, didn't belly up to the Stanford trough as well.

GLL

February 17, 2009 01:45 PM

The SEC finally decides to quit being chummy with all of the Wall St. hustlers and actually does something? Wow, that is news.

DanM

February 17, 2009 01:47 PM

Where is Frank castle when you need him....

LRS

February 17, 2009 01:57 PM

Now that the SEC is under a microscope they start actually doing their jobs. Where the hell have they been for the last 10 years? Lining their pockets, sleeping on the jobs and rubbing elbows with their Wall Street buddies. Too little too late. They should all be thrown in jail as accomplices for aiding and abetting.

Barton Poran

February 17, 2009 02:07 PM

These frauds must be uncovered before our nation takes the steps necessary to regulate it's financial system.

If the allegations prove true I hope that punishment is swift and severe for all involved.

By the way isn't it "Sir" Robert Allen Stanford?

kevinl

February 17, 2009 02:11 PM

Those Viet Nam college deferments are coming back to haunt the American financial system.

John Cahill

February 17, 2009 02:24 PM

The 8 billion, if it is lost, will be a single rain drop in a thunderstorm when SEC starts their investigation of SWAP D Market that total over 57 Trillion dollars.

Average Joe

February 17, 2009 02:31 PM

I'm thinking about the guy who buried some of his money...does not sound too silly anymore.

Mahar

February 17, 2009 02:33 PM

This is all happening beacuse of the greedy people like him,they lur people for big return and make some dummy charities to hide their ugly faces

otto rock

February 17, 2009 02:34 PM

Great job of reporting, Matthew Goldstein. You were the first of the MSM on the trail and you filed and filed on the story. Kudos.

FBEye

February 17, 2009 02:43 PM

I'll bet that all the PONZI SCHEMES in the USA have now been exposed, huh????????? Now we can get back to business as usual. Welcome to America- IN FRAUD WE TRUST!

thebob.bob

February 17, 2009 03:07 PM

Wait, don't tell me ..he was a Bush -supporting Republican who doesn't believe in Government Regulation of Financial markets. Just a guess.

Freelance Editor

February 17, 2009 03:16 PM

Congrats to businessweek for breaking this story before the other major financial publications. However, you guys should spend some money on hiring some editors. I noticed many spelling and grammatical errors in this article. "appointing" and "wealthy" were spelled wrong. Some sentences don't flow right: "It’s not known where Allen Stanford, the sole shareholder of Stanford Financial is." or "A bigger spender, Stanford owns a number of private jets".

Fonzie Ponzi

February 17, 2009 04:19 PM

Between its PAC and its employees, Stanford Financial Group has given $2.4 million to federal candidates, parties and committees since 1989, with 65 percent of that going to Democrats. Stanford and his wife, Susan, have given $931,100 out of their own pockets, with 78 percent going to Democrats.

See list at link below:
http://www.opensecrets.org/news/2009/02/investment-manager-stanford-wa.html

Ponzi Fever

February 17, 2009 05:31 PM

Ground she's movin' under me
Tidal waves out on the sea
Sulphur smoke up in the sky
Pretty soon we learn to fly

No time to count what I'm worth
'Cause I just left the planet earth
Where I go I hope there's rum
Not to worry mon soon come

Millennium Bank is located in Kingstown which is the capital of St. Vincent and the Grenadines

http://www.mlnbank.com/EN/services/premcds.htm

1 Year CD
$5,000 6.00%
$25,000 6.50%
$100,000 7.00%

John

February 17, 2009 06:30 PM

The greatest Ponzi scheme in all of recorded history is still alive and kicking: Social Security.

Lisa

February 17, 2009 10:50 PM

...and so it goes, our Financial Kings much like Humpty Dumpty end up in pieces that will never be put back together again, or at least we hope!

Mark

February 20, 2009 06:58 PM

John - your comment may be overlooked by many - but it was well said. You deserve a trophy for that one. Amen and pass the stimulus checks.

Jim

February 23, 2009 10:25 PM

Did anyone have any idea when people who used Stanford for investment advise but did not have any of the off shore CD's will get their money freed up?

Thank you for your interest. This blog is no longer active.

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.